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Fiscal policy uncertainty and its effects on the real economy: German evidence

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  • Joscha Beckmann
  • Robert L Czudaj
  • Georgios Kouretas

Abstract

This article introduces a new measure of fiscal policy uncertainty (FPU) based on the disagreement among professional forecasters. We analyse different patterns of this measure for the German economy and also use Italian data for comparison. Especially, we examine the impact of the introduction of the German ‘debt brake’ on FPU. Finally, we conduct an impulse response analysis to investigate the effect of FPU on the real economy and we provide robust evidence that FPU significantly decreases the growth rate of industrial production. The corresponding effect is robust to various sensitivity checks and exceeds the impact of a general measure of economic policy uncertainty. In general, the negative effect on the real economy might be explained by lower hiring and investment by firms, higher costs of financing due to risk premia and lower consumption spending as a result of precautionary savings.

Suggested Citation

  • Joscha Beckmann & Robert L Czudaj & Georgios Kouretas, 2021. "Fiscal policy uncertainty and its effects on the real economy: German evidence," Oxford Economic Papers, Oxford University Press, vol. 73(4), pages 1516-1535.
    • Handle: RePEc:oup:oxecpp:v:73:y:2021:i:4:p:1516-1535.
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    File URL: http://hdl.handle.net/10.1093/oep/gpab009
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    Cited by:

    1. Zeqiraj, Veton & Gurdgiev, Constantin & Sohag, Kazi & Hammoudeh, Shawkat, 2024. "Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Latifi, Albina & Naboka-Krell, Viktoriia & Tillmann, Peter & Winker, Peter, 2025. "Disagreement about Fiscal Policy," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325368, Verein für Socialpolitik / German Economic Association.
    3. Joscha Beckmann & Robert L. Czudaj, 2023. "The role of expectations for currency crisis dynamics—The case of the Turkish lira," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 625-642, April.
    4. Beckmann, Joscha & Czudaj, Robert L., 2026. "Uncertainty shocks and inflation: The role of credibility and expectation anchoring," Journal of International Money and Finance, Elsevier, vol. 160(C).
    5. Niels Gillmann & Alexander Hilgenberg, 2021. "Wie man wirtschaftliche Unsicherheit empirisch messen kann – Eine Darstellung am Beispiel von Deutschland," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 28(02), pages 24-29, April.
    6. Mirjalili, Seyed Hossein & Safari, Omid, 2025. "Fiscal Policy Uncertainty and Economic Activities in Iran’s Provinces," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 75-101.
    7. Stavros P. Migkos & Damianos P. Sakas & Nikolaos T. Giannakopoulos & Georgios Konteos & Anastasia Metsiou, 2022. "Analyzing Greece 2010 Memorandum’s Impact on Macroeconomic and Financial Figures through FCM," Economies, MDPI, vol. 10(8), pages 1-19, July.
    8. Rongwu Zhang & Lan Luo & Jianjun Du, 2023. "The influence of fiscal policy uncertainty on corporate total factor productivity: Evidence from Chinese public companies," Contemporary Economic Policy, Western Economic Association International, vol. 41(3), pages 532-554, July.
    9. Safari, Omid & Assadzadeh, Ahmad & Mirjalili, Seyed Hossein, 2024. "Fiscal Policy Uncertainty and Industrial Investment in Iran," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 16(1), pages 229-259.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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